Let’s look at some of the commonly encountered terms and understand them in brief.
Market Capitalisation or “Market Cap” of a company: Market Capitalisation is the total value of a company’s outstanding shares in terms of Rupees. We can arrive at a company’s market cap by multiplying it’s share outstanding by the current market value of one share. This, being simple in calculation and effective in risk assessment, is used as determiner of a company’s size and is helpful in making decision for buying stocks.
GDP or Gross Domestic Product: GDP is the monetary value of all the finished goods and services produced within a country in a given time period. It provides a framework for investment decision making. GDP calculation can be done through three approaches based on Income, Spending or Production. It is commonly used as an indicator of economic health of a country. Net GDP growth over a period is Gross GDP growth less the inflation measured over the same period.
Inflation: Inflation is the rate at which the average price level for goods and services is increasing and the purchasing power of currency is decreasing. Inflation is expressed in percentage over a period of time. For example, if today the price of sugar is Rs 10 per Kg and you have Rs 100, you can buy 10 kgs of sugar. Now, if the rate of inflation is 10% per year, than after 1 year, cost of sugar will increase to Rs 11 per Kg and you can buy 100/11 = 9 Kgs of sugar or in other words purchasing power of your Rs 100 will decrease.
Bond: It is a fixed income investment. In this process an investor, who buys the bond, actually loans money to the entity which sales the bond and borrows the fund for a specific period at a fixed interest rate. Bonds are used typically by governments or corporates to raise money for variety of projects. The owner of bonds are creditors of the issuer of bonds. A bond includes the terms of the loan, interest payment (called coupon) that will be made and the time at which the loaned fund will be paid back (called the maturity date). The interest rate is called the coupon rate.